We're selling another loser. Crypto's collapse is part the reason

Published Thu, May 12 20223:02 PM EDTUpdated Thu, May 12 20223:26 PM EDT

We're selling 150 shares of PayPal (PYPL) at roughly $72 each. Following Thursday's trade, the portfolio will own 400 shares of PYPL, decreasing its weighting to 1.04% from 1.43%. We're making another tough sale Thursday of a stock we have not liked for months to build up extra cash for protection in this rough market. We want to increase our dry powder to fill the portfolio with quality companies that trade at more reasonable valuations, pay dividends, and repurchase stock. Taking a step back for a moment, there's a lot of talk Thursday about the Federal Reserve raising interest rates, inflation, and general economic uncertainty. However, we think there's one more reason why the stock market has been sinking and unable to sustain any type of bounce, despite heavily oversold levels and the pullback in Treasury yields. It has to do with the recent carnage in bitcoin and other crypto markets. While crypto has little to do with the profitable, cash-flow-generating, make-stuff-and-do-things defensive companies that we have been leaning into, we have to acknowledge how there could be indirect effects on consumer spending from this wipeout of digital currency wealth. Recent data showed that more than 44% of bitcoin investors are now underwater , and we could only imagine that number has only gone up in the past few days. We know that crypto trading and investing is more popular with younger people, so we took a hard look at our portfolio to figure out what in the portfolio could have the most earnings at risk if spending slows down among this demographic. If crypto plunges further, we could see that decline in spending go from a worry to reality. It's not going to be in health care stocks, oils, industrials, or consumer staple names that people need to buy no matter. In our review, the obvious choice is PayPal due to the popularity of Venmo and reliance on e-commerce. Of course, PayPal also has its own crypto platform. Due to our concerns and general uncertainty about what the selloff in crypto could mean for PayPal, we are making a sale here and taking a tough 72% loss on the lot.. (Jim Cramer's Charitable Trust is long PYPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Dan Schulman, CEO, Paypal speaking at the World Economic Forum in Davos, Switzerland, Jan. 23, 2020.

Adam Galacia | CNBC